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Investor Sentiment and Consumer Confidence Rises Despite Higher Inflation and Rising Coronavirus Cases

Market Data as of Week Ending: 12/24/2021 unless noted otherwise

Equities

U.S. stock prices advanced in the holiday shortened trading week as sentiment improved around the economic and health impacts of the omicron variant. Investors will soon turn their attention toward quarterly earnings to see if the recent surge in coronavirus cases detracted from growth. Analysts are expecting fourth quarter earnings to grow more than 20% for the S&P 500. As we dig deeper into performance for the past week, growth stocks outperformed their value counterparts and small companies generally outperformed large and mid-sized peers. All eleven of the major economic sectors delivered gains for the week but outperformance was concentrated in the consumer discretionary, information technology, and communication services sectors. In a reversal from last week, traditionally defensive sectors such as real estate, utilities, and consumer staples lagged. Developed foreign and Emerging Market stocks ended the week in positive territory, but underperformed U.S. stocks.

Bonds

U.S. Treasury yields advanced across the curve as the 10-year ended the week at 1.49%. Higher quality bonds suffered the most as investors embraced risk assets. Long duration government bonds were the worst performing segment and intermediate high yield corporate bonds were the best performing segment. Divergent paths meant that investment grade corporate bond yields advanced and ended the week at nearly 2.4%, whereas yields for lower quality corporate bonds decreased and ended the week at approximately 4.9%.

Macroeconomic Data

Economic data released during the week were generally better than expected and largely overshadowed by news around the omicron variant and Senator Joe Manchin’s announcement that he would not vote in favor of the $2 trillion Build Back Better Act. Initial jobless claims were unchanged and ended the week at 205,000 which remains near a more than fifty year low. The Conference Board announced that its consumer confidence index rose to 115.8 in December from 111.9 in November, despite higher inflation and rising coronavirus cases. Durable goods orders came in higher than expected and rose 2.5% in November, which was the best monthly figure since May. In Europe, the European Union outlined its plans for implementing a global minimum tax rate of at least 15% on corporate profits in 2023.

 

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Markets End Volatile Week Lower Amid Heightened Concerns

Market Data as of Week Ending: 12/17/2021 unless noted otherwise

Equities

U.S. stock prices ended the volatile trading week lower as the prospect of central bank tightening and uncertainty regarding the impact of omicron spread plagued sentiment. The S&P 500 fell by -1.91%, after rallying last week, amidst tech weakness. The value factor was a positive contributor as those stocks outperformed growth last week while the size factor was mixed. Traditionally defensive sectors such as health care, utilities, consumer staples outperformed, while sensitive sectors in energy and technology lagged. Developed foreign and Emerging Market stocks ended the week lower, but outperformed U.S. stocks.

Bonds

U.S. Treasury yields were mixed as short-term yields remained flat, reflecting monetary policy, while longer dated maturities dipped. The 10-year fell to 1.40%, down from 1.49% at the end of the previous week. Investment grade corporates and high yield bonds decreased slightly, ending the week with yields around 2.3% and 5.0%, respectively.

Macroeconomic Data

Economic data released during the week was headlined by the Federal Reserve monetary policy meeting. As expected, the Fed announced it’s accelerating the pace at which it will phase out its pandemic-era program that’s been purchasing $120 billion in bonds each month. The Fed taper is now expected to end by March 2022 instead of next June. The NFIB small-business index rose slightly to 98.4, as 59% of small-businesses increased prices over the last month. U.S. retail sales slowed in November as consumers bought fewer goods and services amid higher prices. The Philly fed manufacturing index slipped to 15.4 in December, well off the estimated reading of 30.0. The home builder’s monthly confidence index rose to 84 in December, reflecting the positive outlook considering the continued low supply of existing homes for sale. The BoE unexpectedly raised its bank rate 15 basis points to 0.25% as a first step to control inflation. Data released before the meeting indicated that 12-month consumer price inflation hit 5.1% in November—the highest level in a decade.

 

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Stocks Post Solid Weekly Gains as Omicron Fears Ease

Market Data as of Week Ending: 12/10/2021 unless noted otherwise

Equities

U.S. stock prices moved higher last week as concerns regarding the new Omicron variant eased after reports of potentially promising vaccine data. The S&P 500 recorded its strongest weekly result in 10 months while the VIX, a gauge of investors’ market volatility expectations, fell 39%. Size and style factors were mixed last week as large growth rebounded, outperforming large value by a wide margin. All the major economic sectors posted gains, with stocks in the information technology and energy sectors leading the way. Consumer discretionary, utilities and financials lagged, but still posted strong gains. Developed foreign stocks in Europe and Asia lagged U.S. stocks and Emerging Market stocks underperformed both U.S. and developed foreign stocks.

Bonds

U.S. Treasury yields reversed trend, increasing last week as concerns surrounding the virus abated and economic data came in strong. The 10-year rose to 1.49% on Friday, up from 1.34% at the end of the previous week. Investment grade corporates increased slightly while high yield corporate bonds continued their decline, ending the week with yields around 2.4% and 5.0%, respectively.

Macroeconomic Data

Economic data released during the week was mostly mixed. Job openings rose to 11 million in October, marking the second highest level on record, but did come in below estimates as people are still switching or leaving their jobs. The cost of living rose again in November as the consumer price index rose 0.8%, higher than the forecasted 0.7% increase. The U.S. inflation rate swelled to a 39-year high of 6.8%, up from 6.2% last month, as higher prices are outstripping the biggest increase in worker wages in decades. University of Michigan’s consumer sentiment gauge rebounded in December, up to 70.4, but inflation fears loom large. Household inflation expectations for the next 5 years remained steady at 3%, still above the pre-pandemic level of 2.3%. Gross domestic product in the UK rose by 0.1% in October, slowing from 0.6% in September, as the construction industry shrank due to rising costs and supply disruptions.

 

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Omicron and Tapering Fears Send Market Lower

Market Data as of Week Ending: 12/03/2021 unless noted otherwise

Equities

U.S. stock prices pulled back last week on news of the Federal Reserve’s potentially accelerated tapering program along with growing concerns that the Omicron variant could weigh on global economic growth and contribute to supply chain disruptions. Last week’s trends remained in place as the value factor was once again a positive contributor as those stocks outperformed their growth counterparts and large companies significantly outperformed their small and mid-sized peers. Utilities and real estate were the only sectors to post a gain last week. Consumer staples, information technology and industrials outperformed, while the communication services and consumer discretionary sectors gave up the most ground. Developed foreign stocks in Europe and Asia outperformed U.S. stocks and Emerging Market stocks outpaced both U.S. and developed foreign stocks.

Bonds

U.S. Treasury yields were mixed, as the yield curve flattened over the week as Fed Chairman Powell’s hawkish testimony sent short-maturity yields higher while uncertainty around the Omicron variant’s impact on growth sent 10-year lower, ending the week at 1.35%. Investment grade corporates remained anchored while high yield corporate bonds declined, ending the week with yields at 2.3% and 5.1%, respectively.

Macroeconomic Data

Economic data released during the week was relatively mixed, highlighted by jobs report. The U.S. only gained 210,000 new jobs in November, well below the expected 573,000, even though businesses ramped up hiring efforts. However, the unemployment rate fell sharply, from 4.6% to 4.2%, and the labor participation rate rose as more Americans entered the labor force. U.S. consumer confidence fell to a nine-month low in November due to inflation concerns, while optimism is expected to take another hit as the Omicron variant enters the picture. The ISM manufacturing index rose to 61.1% in November, suggesting strong factory activity and potentially supply chain easing. The ISM services index jumped to 69.1% in November, as service-oriented businesses such as banks, retailers and drug stores grew at their fastest pace on record, despite companies dealing with labor and supply shortages. Inflation in the eurozone accelerated to its highest level since the single currency was introduced in 1999. Consumer prices rose an annualized rate of 4.9% in November, up from 4.1% in October, as energy costs surged.

 

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